Why Apple Should Pay $100 Billion to Buy Facebook

Put Apple and Facebook together and you have a potential Google killer.

NEW YORK ( TheStreet ) -- Apple ( AAPL) currently has a $315 billion market capitalization, with $60 billion in cash on its balance sheet. Analysts speculate it will use the money to start paying a dividend, do stock buybacks, or do an acquisition. There is one company that should be on the top of Apple's shopping list: Facebook -- and Apple should be willing to spend up to $100 billion to get it.

Last October, Steve Jobs made an unexpected appearance during the quarterly analysts' call and was asked his intentions for the cash pile.

He responded: "We strongly believe that one or more very strategic opportunities may come along that we're in a unique position to take advantage of because of our strong cash position." In other words, they will only use this money for acquisitions.

Until now, Apple has only made small, sub-$100 million acquisitions like music streaming service Lala. A year ago, it bought mobile advertising company Quattro Wireless for $300 million. Although there were rumors six months ago that it might make a play for chip-maker ARM Holdings ( ARMH), Apple has never done a $1 billion acquisition.

But, we shouldn't mistake inaction for inevitability. What could a "very strategic" opportunity be for Apple to acquire? A chip-maker would help them increase their gross margins, but it isn't a game-changer.

In my view, the only company out there that could represent a huge increase in the opportunity set in front of Apple for the next 10 years is Facebook.

Interestingly, a week before Jobs' appearance on the analyst call last year, the LA Times reported that Jobs invited Facebook CEO Mark Zuckerberg to dinner at his house. The topic of conversation reportedly centered on Apple's new social networking service called Ping. Although the service was initially designed to allow iTunes users to share their song preferences with their Facebook friends, Jobs pulled the plug on this after Facebook tried to impose " onerous terms " on Apple.

Enabling Facebook to connect with Ping could certainly be lucrative for Apple. One media executive told me recently their traffic went up 30% immediately when they enabled this feature to their site. However, this alone isn't sufficient grounds for justifying a Facebook acquisition.